Macro Monday - June 16, 2025
Volatility Returns as Geo-Political Risk Meets Sticky Inflation and Diverging Central Bank Paths
Global Macro Regime
Markets step into the week wrestling with two intertwined forces: geo-political risk premium and late-cycle policy inertia. Israel and Iran’s escalating conflict, now in its third day of cross-border attacks, has traders repricing energy complex volatility. WTI punched higher, threatening $120–125/bbl as supply risks mount. Meanwhile, macro flows are at a crossroads: sticky inflation globally is clashing with softening growth data and dovish hopes priced across OIS curves.
The global rates regime continues to reflect front-loaded cuts, particularly in the US and Australia, while the ECB and BoE face slower transmission and more nuanced inflation dynamics. We are entering a binary inflection point for central banks — stay put and wait, or blink and pre-empt weakness.
Key Calendar Events
What’s Priced — What Could Shift
US Rates Market
3 cuts priced by Jan 2026, front-loaded (–108.5 bp total).
First cut odds:
Jul 30: 22.4% (low)
Sep 17: 69.2% (base case)
Vulnerability:
Hot CPI or strong labor → pricing pushed to December.
SEP with fewer cuts or higher dot → curve bear flattens.
Central Bank Pricing Mismatch
ECB: 100+ bp cuts priced by Apr-26 — too dovish.
RBA: ~100 bp of cuts still seen despite inflation risks and firm labor.
BoE: Sep/Nov cuts priced despite core CPI at 3.3% y/y. That’s rich.
Vulnerabilities & Asymmetric Risks
Energy Shock Risk: With Israeli strikes on Iran’s energy infrastructure, WTI is a tailwind to global headline CPI and may cap central banks’ ability to ease. Watch natgas and European utilities.
FOMC Dot Surprise: Risk that 2025 median dot doesn’t budge or 2026 dots pull higher. In that case, SFRZ5–SFRH6 steepener or receive Oct SOFRs looks vulnerable.
UK CPI Upside: A surprise higher print could reprice August and November BoE meetings sharply, steepening SONIA 3s6s.
AUD Short Squeeze: If jobs beat again, the market may unwind front-end receivers too aggressively placed.
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Below: Chats US OIS path, ECB OIS/CPI, Trade Idea and Macro Theme Table
